Investment advice in Ontario - How You Can Turn Fund Losses into Tax Benefits

With the end of the year approaching, it’s an ideal time to review the performance of your investments — in particular, segregated fund holdings that have declined in value. This is a great way to ensure that you are using insurance to maximize your income tax benefits. 

Because in Ontario fund performance sometimes results in a loss, depending on the markets in a given year, we need to ensure that we are receiving good investment advice and pay as much attention to our “sell” strategy as we did to the steps that originally led us to make those promising investments. 

The end of the year is a good time to consider selling underperforming segregated funds. We may not be able to revive them, but the right strategy can help minimize taxes and give the holdings one last crack at doing some good for your portfolio returns.  

One piece of good investment advice in Ontario is to consider if the proceeds from those funds can be used in more promising investments, this could be the time to sell at a loss to improve your year-end tax position for more income tax benefits. 

More good investment advice in Ontario is to recognize the opportunity to ‘sell low’. By redeeming fund units (outside your registered plans such as Registered Retirement Savings Plans) for less than their original cost, you will create a capital loss that can be used to offset capital gains on your income tax return. By reducing your capital gains, you reduce your income tax bill.  

You may even be able to use that loss towards income tax benefits by reducing income taxes in future or past years. If you own money-losing segregated funds that are likely to make a year-end distribution, you take advantage of the capital loss for income tax purposes and avoid a taxable distribution by redeeming before the distribution date (generally mid-December). 

We need to carefully consider which of your segregated funds holdings are candidates for tax-loss selling. These should be investments that we believe have little opportunity for recovery. We also need to weigh the financial benefits of tax-loss selling in each case. 

When we create a capital loss, it must first be used to offset any capital gains earned in the same income tax year. Any remaining losses can be carried forward indefinitely to future years or applied to gains from the previous three years. 

Here’s an example of how tax-loss selling can work to your benefit. 

Let’s assume you invested $80,000 in a segregated fund a few years ago (outside a registered plan) and sold that investment this year $100,000, for a profit of $20,000. You also sold a money-losing fund investment this year for a loss of $10,000.  You would deduct the $10,000 loss from the $20,000 gain, leaving you with a capital gain of $10,000 for the year. Half that amount must be reported as a taxable capital gain on your income tax return, so you will pay tax on $5,000. You can use a capital loss on any eligible investment to offset a capital gain on any other eligible investment. For example, your segregated fund loss could be used to offset gains from segregated funds, stocks, bonds, exchange-traded funds, or even promising investments in real estate. However, capital losses can normally be used only to reduce or eliminate capital gains, not to offset other income. 

There is one important caveat: When you sell a security to claim a capital loss, do not buy that security again for at least 30 days. Otherwise it will be deemed a superficial loss by the Canadian Revenue Agency and you won’t be allowed to use it to reduce taxable gains. 

Timing is important. Transactions need to be completed before year-end to qualify for your 2011 income tax return. Please refer to your tax professional or accountant for advice. For more investment advice in Ontario, please contact Gary Mandel by calling (416) 849-1653 or by www.wecoveryou.ca  

Life Insurance Brokers Should Review All Your Life Insurance Options with You

With 2011 drawing to a close, it’s an ideal time to review your insurance strategy with your Life Insurance Broker. The goal should be to ensure that your coverage is keeping pace with changes in your life and that you are aware of all your life insurance options.

People get jobs and lose jobs, the stock market goes up and down, unexpected events, and these are just the basics of life. Look at what has happened in your life recently. Some developments that may warrant a visit to your Life Insurance Broker and changes in what you’re paying for insurance can include: marriage or divorce, the birth of children, children growing into adulthood, a death in the family, a new job, a higher salary, an inheritance, or a change in your wealth or debt levels.

Taking the time to review your life insurance options and what you’re paying for life insurance with your Life Insurance Broker also gives you the opportunity to review where your finances have taken you this year. To see whether your portfolio is still in alignment with your goals and consistent with where your life has taken you. It’s not only a chance to review your investments but also review all aspects of your financial life.

Make sure you have enough life insurance because inadequate insurance can lead to financial difficulties or less support for your family in an emergency. Sufficient life insurance coverage will allow you and your family to weather events that could otherwise lead to financial problems.  Having life insurance is good but having sufficient life insurance coverage is key.

Do you need less life insurance coverage? There are lots of life insurance options and there’s no point in paying for life insurance that you no longer require. Instead, your Life Insurance Broker can suggest you consider diverting the money you’ll save on premiums into savings and investments.

Have you considered more than just life insurance coverage? An annual review of your life insurance coverage with your Life Insurance Broker of what you’re paying for life insurance and what you’re life insurance options are is the best way to assess whether your coverage is adequate. It’s also a great way to ensure that you’re making the best use of all the insurance products you need to guard your financial security and that of your family. While life insurance is central to coverage, your Life Insurance Broker should explore possibly unanticipated needs such as long-term care coverage, critical illness insurance, and disability insurance. Together, you can review your life insurance coverage and other life insurance options to ensure you have the peace of mind that comes from knowing you’re well covered for 2012.

For more information about Life Insurance coverage and the life insurance options that are available you can contact Gary Mandel by calling (416) 849-1653 or by visiting www.wecoveryou.ca

Life Plan Insurance – When Life Changes So Should Your Insurance Coverage

Like all aspects of your finances, your life plan insurance needs can change. We should regularly review your insurance coverage to ensure it offers the best possible protection. When life changes so should your insurance coverage. Your evolving insurance needs depend on your current and changing life situation and your financial goals. Our review should be based on an exploration of the key aspects of your life plan and life plan insurance needs. Here are three to consider.

1. Life events - Some of the key developments that can call for life plan insurance changes can include marriage, divorce and a change of income. For example, perhaps you need to increase insurance coverage because your family is larger and you want to leave more for your heirs. Alternatively, perhaps you no longer have a need for as much insurance because you’ve built up wealth, paid off your mortgage and your kids have finished their schooling.

A review of your life plan insurance might even reveal how we can save you money on life insurance coverage. So for instance, if your health has changed for the better by losing a great deal of weight, your high cholesterol has dropped or you’ve quick smoking — we might be able to take advantage of the breaks on life plan insurance premiums some insurers offer under those circumstances.

2. Beneficiaries may change over the course of your life. One thing we should always review is your beneficiaries. Since they’re the ones who receive the proceeds of your policy, it’s important that we always make sure they’re who you want them to be and that you’re taking care of them in the best way possible.

You may want to make beneficiary changes as you go through life, to accommodate new children or grandchildren or even to leave insurance proceeds to your estate so they can be distributed through your will. It depends on your current and changing situation and your financial goals.

3. Your financial situation circumstance could affect your life plan insurance needs. We should explore your insurance coverage in relation to your overall financial picture. Remember, insurance is just one part of a long-term financial strategy, which means the coverage that’s right for you depends on other aspects of your financial life.

If your life insurance policy includes an investment component, we can explore how it fits in with your overall plan. We’ll examine its investment performance and consider the best ways to use the cash value.

Together, we can determine whether the types of policies and the levels of coverage you already have are still appropriate for you and your family. If changes are appropriate, we’ll make recommendations. Let’s discuss your life insurance coverage at least once a year. Then you’ll have the peace of mind that comes from knowing you’re well covered.

For more information about life plan insurance and keeping your insurance coverage current please contact Gary Mandel by calling (416) 849-1653 or by visiting www.wecoveryou.ca  

Beneficiary Designation – Should Your Life Insurance Beneficiary be an Individual beneficiary or your Estate?

Your beneficiary designation will determine who benefits from your estate in the event that you pass away. When buying life insurance, most people assume it’s best to name an individual beneficiary — for example, a spouse or a child. However, there are times when it makes more sense to have the proceeds of your policy go to your estate. This means making your beneficiary designation your estate and not an individual.

Here are the ins and outs of leaving your life insurance to your estate. Naming an estate as your beneficiary designation can be a good choice when you want the proceeds to meet non-traditional life insurance needs — meaning, other than to provide for a spouse or children - or needs that go beyond individual beneficiaries.

When your beneficiary designation is your estate, the proceeds of the policy are distributed according to the terms of your will, along with your other property. Your insurance proceeds are brought together with all your other assets.

Consider whether you think you’ll need to change your estate plan as you move through life. Naming your estate as your beneficiary means changes can be made more simply: through your will. You won’t have to worry about changing beneficiaries on insurance policies.

Here are some other reasons you might want to consider naming your estate as your life insurance beneficiary. You can use this strategy to:

Leave money to charities. You can specify in your will how much of your estate goes to each charity and change your instructions at any time, without naming charities as life insurance beneficiaries. Set up a trust. Leaving cash to an estate can sometimes make it easier, as the will can dictate the setup of trusts for children. This can be useful when you want to specify how money left to children is to be spent or to make provisions for children to receive funds when they reach a certain age.

Pay expenses. You can use life insurance proceeds to pay costs associated with your estate. These can include final expenses, debts and tax liabilities. There are a couple of caveats you should be aware of when considering naming your estate as the beneficiary of your insurance policy. They include the fact that policy proceeds (along with the rest of your estate) may be reduced by the cost of probate — the legal process that validates the authenticity of a will. Probate can also delay distribution of assets and your estate may be subject to legal claims from creditors.

However, under the right circumstances, the advantages of naming an estate can outweigh these considerations. If you name your estate as a beneficiary, it’s important to make sure your will is always up to date.  Together, we can explore when and where insurance proceeds will be needed and determine whether naming your estate as beneficiary makes sense for you. For more information about beneficiary designations and whether to name an individual as your life insurance beneficiary or your estate contact Gary Mandel by calling (416) 849-1653 or by visiting www.wecoveryou.ca

Retirement Planning in Canada - How to Talk to Your Parents About Their Retirement Plans

At some point, you’ll need to have “the talk” with your parents about their finances and their financial future. Retirement planning in Canada is the only way for them to keep their financial future on a solid foundation and for you to prepare yourself to provide the help they might need as they grow older.

Helping your parents make a retirement plan is about their needs, not yours, and retirement planning is not always an easy discussion to have. Parents may see your attempt to discuss their retirement plans as an intrusion - especially in families where talking about money is taboo. They may even fear that you’re trying to take control of their money. But it’s important because one or both of your parents may become ill or incapacitated and unable to manage their finances in the future.

In addition, the health care in Ontario leaves much to be desired and so if your parents want to retire in comfort, a strong retirement plan will be key. Retirement planning in Canada could consider their life insurance needs, long term care planning, critical illness coverage and more. It all depends on your parent’s health, financial circumstances and future desires.

They should be aware that without thoughtful planning, how they are cared for at that time could be entirely out of their control. It’s about their needs, their comfort and how they want to be cared for.

Don’t wait for a crisis. Talking to your parents and planning ahead for their retirement will help make sure their wishes are carried out, and potentially eliminate squabbles among family members if your parent’s wishes aren’t clear.

Retirement planning in Canada is really important and helping your parents see the benefits when making their retirement plans can make the conversation much easier.

You can avoid problems and alleviate worries concerning their retirement planning by showing your parents the benefits of sharing their financial information. Let them know that it will be easier for you to help them in the future if you have the information now. Stress that it’s important for them and their family, financially and emotionally. Some discussion points when discussing retirement planning in Canada include:

• Do your parents have up-to-date wills? If so, where are they kept?

• Do they each have powers of attorney (both for property and health care)?

• Who are the executors in their wills, and has this decision been reviewed lately?

• Will they have enough funds to continue living comfortably? To plan, they need to provide details of assets, liabilities, income and expenses, and details of financial accounts — or at least where accounts are held. As well, contact information for financial and legal advisors is necessary.

Don’t be afraid to seek expert advice. We can prepare you for a talk with your parents about finances. And if it will help, we can be part of the discussion. For more information about retirement planning in Canada and helping your parents make their retirement plans contact Gary Mandel by calling (416) 849-1653 or by visiting www.wecoveryou.ca

What Are Segregated Funds? We Make Sense of Segregated Funds, an Emerging Market and High Yield Investment

Many investors think of emerging markets only as stock market investing opportunities. But did you know that in recent years emerging bond markets have produced consistently strong returns? Currently, a growing selection of Canadian segregated funds can help you benefit from these returns and at the same time increase the diversification of your fund portfolio.

More to choose from and contrary to what many believe, emerging market bonds aren’t as risky as they once were and have proven to be a high yield investment.

Segregated funds don’t have to be confusing. A large percentage of emerging market bonds are higher-quality “investment grade,” unlike a decade or so ago. According to a major U.S. financial institution survey, 56% of emerging markets bonds is now investment grade, up from 17% in 1998. Plus, the difference in yields between emerging and developed markets can be considerable — often double or more for similar government bonds. For example, according to Bloomberg data, as of January 31, 2011, 10 year U.S. treasuries yielded 3.4%; meanwhile, 10 year government of Brazil bonds yielded 13%. That can make a significant difference in your portfolio’s fixed-income returns.

Certainly, part of that yield difference stems from the fact that emerging market bonds must pay higher interest to compensate investors for the risk of investing in emerging countries. Many emerging countries have environments of chronically higher interest rates, in which bonds must compete for investors’ cash. Latin American economic powerhouse Brazil, where central bank rates are among the world’s highest, is an excellent example.

Foreign-exchange risk must also be factored into your decision. Yet Brazil, like several other emerging economies, has had its sovereign credit ratings upgraded in recent years. The reason is emerging market governments and central banks have become much better at managing economies
and tempering boom-and-bust cycles.

In fact, some emerging economies fared better than their developed counterparts during the recent recession and have since returned to much higher growth rates. Finding opportunity in segregated funds emerging debt markets can be difficult to navigate. We recommend the professional money management of segregated funds that invest in emerging market bonds.

The selection of segregated funds available to Canadians is growing in recognition of the fact that emerging market securities are in demand and that they offer Canadians an alternative to traditional developed country bonds or corporate bonds.

Emerging market bond funds usually focus on bonds issued by governments, although some may hold debt issued by corporations. They typically aim for a combination of income and capital growth through potential appreciation in bond prices. We should look for funds that diversify holdings among geographic markets and bond types to help maximize returns and manage risk. You can also get exposure through international funds that hold debt securities of both developed and emerging markets.

We’ll be pleased to show you how emerging market bond funds can help boost your fixed-income returns, improve the diversification of your overall portfolio and help you reach your financial goals.

For more information about segregated funds and high yield investments please contact Gary Mandel by calling (416) 849-1653 or visit www.wecoveryou.ca

Life Insurance Coverage in Ontario Should Be Reviewed Annually as Life Insurance Needs Can Change

Like all aspects of your finances, insurance needs can change. Families mature, and new life insurance products come available that offer different incentives. It is always a good idea to review your life insurance coverage from time to time to ensure it offers the best possible protection.

Your evolving insurance needs depend on your current and changing life situation and your financial goals. Insurance changes should be based on an exploration of the key aspects of your life and adjusting your life insurance coverage in Ontario to better reflect your current insurance needs.

Here are three to consider:
1. Life events – Some of the key developments that can call for insurance changes include marriage, divorce, birth of children, change in income or a sudden change to your wealth. For example, perhaps your insurance needs change because your family is larger and you want to leave more for your heirs. Alternatively, perhaps you would be better suited to consider insurance products that offer a tax benefit as one example because you’ve built up your wealth, paid off the mortgage and your kids have finished their post-secondary education. A review might even reveal how we can save money on life insurance coverage. For example, if your health picture has changed for the better – perhaps you’ve lost a great deal of weight or your high cholesterol has dropped – we might be able to take advantage of the breaks on premiums some insurers offer under those circumstances and make the necessary insurance changes.

2. Beneficiaries – One thing we should always review is your beneficiaries. These are common insurance changes since they’re the ones who receive the proceeds of your policy, it’s important that we always make sure they’re who you want them be and that you’re taking care of them in the best way possible. You want to make beneficiary changes as you go through life to accommodate new children or grandchildren. When naming a person as your beneficiary, instead of your estate, the proceeds will be passed on directly to your named beneficiary. This will be private, not public record, and they will bypass probate fees. Your insurance needs depend on your current and changing situation and your financial goals.

3. Your financial situation – We should explore your life insurance coverage in Ontario in relation to your overall financial picture. Remember insurance is just one part of a long term financial strategy, which means the coverage that’s right for you depends on other aspects of your financial life. If your life insurance coverage policy includes an investment component, we can explore how it fits in with your overall plan. We’ll examine its investment performance and consider the best ways to use the cash value.

Discuss your life insurance coverage with your Ontario Insurance Advisor at least once a year. Then you’ll have peace of mind that comes from knowing that you’re well covered. For more information how you can review your Life Insurance Coverage in Ontario contact Gary Mandel at IFCG by calling (416) 849-1653 or by visiting www.wecoveryou.ca